New Report Addressing Financial and Economic Dangers of Democratic Backsliding

On July 11, the States United Democracy Center and the Brookings Institution published a new report by Princeton Professor Layna Mosley, cautioning that the erosion of democratic practices and norms in the United States poses risks for investors. The report provides a range of tools for institutional investors to mitigate those risks and help protect American democracy. 

The report makes clear that the risks posed by democratic erosion are material, meaning that to fulfill their fiduciary duty, institutional investors must closely consider political risks. To do so, understanding the potential dangers and vulnerabilities that undermine democratic principles is crucial. Economic volatility, increased capital costs, reduced business activities, and threats to the liberal international order are among the risks associated with democratic erosion. 

The report explores democratic backsliding in America, global and U.S. democracy landscapes, and the connection between political risk and economic outcomes, and also offers concrete suggestions to effectively respond to these risks.

Key recommendations for mitigation include:

• Institutions should add U.S. political risk to the set of factors assessed when seeking to safeguard the assets of shareholders and beneficiaries.

• When seeking to acquire existing operations or open new ones, businesses should consider a state’s voting laws and assurances of full access to the ballot, as well as any state-level efforts to interfere with the democratic process.

• Institutional investors should advocate for full disclosure of corporate lobbying expenditures as a means of ensuring that lobbying is consistent with corporate strategy, as well as with respect for democratic political institutions.

• Institutional investors should identify an appropriate subset of U.S. portfolio companies (based on risk profiles, market impact, and responsiveness, among other factors) and focus mitigation strategies — including discussions of U.S. political risk — on them.
  

Leadership Now was glad to provide input to the analysis.

To view the full report, click here.

Additional resources: 

• Review our Democracy State Report Cards, which help business leaders make informed decisions about investing and operating in all 50 states. 

• Our Corporate Civic Engagement Best Practice Guide has case studies and resources for business leaders.

How CEOs Can Navigate Today's Politically Fraught Environment

JUST Capital, the platform for measuring corporate performance in the stakeholder economy, featured Business & Democracy Initiative founding partners Daniella Ballou-Aares, CEO & Co-Founder of the Leadership Now Project, and Rhett Buttle, Founder & Principal of Public Private Strategies, discussing why businesses have a vested interest in a stable democracy and why leadership matters.  

JUST Capital: 2 Key Ways CEOs Can Navigate Today’s Politically Fraught Environment

In this piece, Buttle and Ballou-Aares explained the important role CEOs play in making change and why business leaders should continue to take meaningful action on issues that are important to them.

1) CEOs can’t forget the role they play in today’s society. As trust in the government, media, and other institutions remains low worldwide, business leaders have emerged as relatively more trusted to be transparent and put the interests of their stakeholders first.

“People don’t feel that the government is responsive to their interests and needs and are looking for leadership elsewhere,” Buttle and Ballou-Aares said. “That’s part of why CEOs are in the hot seat.”  

2) Executives must get more comfortable speaking out. Media bias, cancel culture, and the challenge of navigating different stakeholders can make speaking out a difficult decision for CEOs. But Buttle and Ballou-Aares underscored that the American public wants to hear from its business leaders. 

“Business leaders should be confident that their voices matter and that the people they interact with – from employees to customers to communities – want to hear from them on critical issues,” they wrote. 

“Freedom of speech is fundamental to our democracy and our economic stability. Rather than standing down in the face of retaliation, companies have a vested interest in working together to uphold our democratic values.”

Learn more about the Business and Democracy Initiative and explore additional steps the Leadership Now Project recommends business leaders take to protect democracy.

Disney CEO Defends Corporate Freedom of Speech

As major national corporations increasingly come under political attack by state governments looking to prosecute culture war fights, a prominent CEO is pushing back.

“A company has a right to freedom of speech just like individuals do,” Disney CEO Bob Iger told shareholders earlier this month. Iger used his freedom of speech to call out Florida Gov. Ron De Santis for his retaliatory moves against the entertainment giant, calling him “anti-business and anti-Florida.” 

Disney is the state’s largest corporate employer and taxpayer and has been subjected to a series of escalating moves by the state government in response to Disney taking a public position on policy. Disney, which has been operating in Florida for 50 years, spoke out against a law that would restrict speech in schools on LGBTQ topics, the so-called “Don’t Say Gay” law. The state of Florida in turn sought to restrict some of Disney’s power to control the land around and on which Disneyland sits.

Told of Iger’s comments, a spokesperson for the Florida governor promised to continue the state’s fight with the company, warning, “As Governor DeSantis recently said, ‘You ain’t seen nothing yet.’”

Iger’s actions are just the latest example of companies redefining what stakeholder capitalism looks like by taking bold steps to support issues that matter to workers, customers, the community, and others critical to long-term success. Tech giant Salesforce, for example, has sought to change the narrative around stakeholder capitalism by speaking out on voting rights issues. In this 2019 New York Times opinion piece, CEO Marc Benioff described why businesses and executives must value purpose alongside profit.

Daniella Ballou-Aares, CEO of the Leadership Now Project, spoke to The Hill about how CEOs are starting to respond proactively to political retribution. As the last few years have shown, businesses that remain silent in the face of attacks on free speech, ESG, and democracy only invite further abuses of power.

To learn more about stakeholder capitalism

and how other businesses are confronting their role in democracy, you can read Leadership Now’s Business Leader’s Guide to Democracy.

January 6th, ECA Reform and a Hopeful Start to 2023

On the second anniversary of January 6th, our CEO, Daniella Ballou-Aares, shared her thoughts on the state of our democracy and the year ahead. Read her article below and subscribe to our LinkedIn newsletter here.

“Today, on the second anniversary of the January 6th insurrection, I want to share a few brief reflections on what this moment tells us about the state of American democracy. 

In short: As we start 2023, I am hopeful about the direction of America’s politics. The most hopeful I’ve been since 2016. The midterm elections proved that election denial is a losing proposition (as deniers lost high-profile races to pro-democracy candidates), critical referendums strengthened voting protections, election and campaign finance reforms continued to win over voters, and independent voters broke for the middle and political normalcy. 

And on December 23rd, Congress took another critical step — passing reforms to the Electoral Count Act. This puts in place key provisions to prevent another insurrection. It clarifies that the vice president’s role in counting electoral votes is purely ceremonial, raises the objection threshold from just one member in each chamber to 20 percent of Congress, and requires that Congress accept the lawful slates of electors for each state. Read more here.

The Leadership Now Project is proud to have joined the year-long effort to enact the legislation. In that time, Leadership Now members made the business case for protecting elections, engaged with numerous senators, made our support known in the press and in many on- and off-the-record convenings, and encouraged other business associations to sign on.

As we look to the year ahead, I am hopeful we can take steps to reinvigorate our system while remaining vigilant in responding to potential threats. January 6th reminds us that the risk of political violence persists. And my own memories of that day, when I lived only six blocks from the Capitol, are still surreal. Keeping my daughters playing in the basement while outside sirens blared. How, in the weeks that followed, a green zone was established that ended at my corner. Military vehicles patrolling the streets. They were the sort of scenes I’d observed working in emerging economies, not ones I had ever imagined seeing in my own country. 

Preventing another Jan 6th, and making our system more dynamic for the future, is why the Leadership Now Project exists. We hope you will join us in the year ahead in being hopeful, vigilant, and committed to building a stronger American democracy.”

Political Violence and Election Denial are on the Ballot

A Midterm Message from Our CEO

As we approach a highly uncertain election, I’ll attempt to cut through the noise and share a few thoughts on what’s at stake, what is being done, and what you can do. 

But first – be sure to vote. November 8th is election day and many states have already started early voting. Encourage friends, colleagues, customers, and employees to participate. Find info on your polling place at vote.org.

What’s at stake in this election?

Political violence and election denial are on the ballot.

• The attack on Paul Pelosi is a warning sign. His attacker was fueled by online conspiracy theories. While Pelosi was recovering from surgery, Twitter’s new owner, Elon Musk, used his platform to spread disinformation about the violent incident.

• 60 percent of Americans will have an election denier on the ballot. This isn’t an isolated incident of disinformation. In many GOP primaries, election denialism is an essential requirement to win.

• Governor and Secretary of State races are key to future election legitimacy. These elections will determine if election denial becomes a governing philosophy in states from Arizona to Michigan and even New York. 

• Arizona is ground zero. Aggressive armed patrols of ballot boxes and pervasive doubts about election legitimacy are increasing the threat of election violence and risk deterring voters in Arizona. Unabashed election deniers are running for governor, secretary of state, and attorney general – and all have a solid chance of prevailing.

• While the risks are significant, turnout and engagement may be high, particularly among women. In battleground states, registration by women has surged. As I discussed on Morning Joe in October alongside Leadership Now member Tom Rogers, addressing the priorities of independent women will be critical.

How are business leaders responding to the threats?

Leaders unite from Michigan, Wisconsin, and beyond, but much more is needed.

• Wisconsin business leaders set clear democracy standards. A few weeks ago, bipartisan Leadership Now Wisconsin members gave a questionnaire to each candidate for Governor to confirm their commitment to certifying elections without bias. Only Governor Evers made that commitment; Michels didn’t respond. Watch what they had to say below and read about it here.

• Michigan business leaders support the Promote the Vote Ballot Initiative. The Detroit Regional Chamber and business leaders in the state endorsed the November ballot initiative, which protects access to voting and reduces the politicization of elections.

• The Electoral Count Act has a strong chance of passing in the lame-duck session, backed by Senate Majority Leader Chuck Schumer and Minority Leader Mitch McConnell. Leadership Now and our members have endorsed reforming the ECA, as has the Partnership for New York City, Business Roundtable, and the National Association of Manufacturers (NAM).

• We joined a massive response to the Supreme Court Moore v. Harper case that could give state legislatures unprecedented control over elections. Read Leadership Now's amicus brief. We joined more than 60 groups and individuals submitting amicus briefs last week, including former generals, state attorneys general, Arnold Schwarzenegger, and the US solicitor general herself. Our brief uniquely makes the case that independent state legislatures would create substantial risks to businesses and markets through gerrymandering and election interference. Oral arguments for the case start on December 7.

What can you do?

Be prepared and vote.

1) First, be prepared not to know all of the results on Election Night. Several key states – including Michigan, Pennsylvania, and Wisconsin – do not allow the counting of mail-in ballots until Election Day or the day before. Other states, including New York and California, can take days to tally mail-in ballots, which can be postmarked through Election Day. While much is uncertain, if history is a guide, it will likely be a night where Democrats lose more than they win (the party not occupying the White House usually does well in midterm elections). Election violence or refusal to accept results by local or even statewide election boards is possible, and lawsuits are almost guaranteed.

2) Vote early or make a plan to vote on Election Day. It may seem obvious, but it must be said. Encourage your family, friends, networks, and employees to act on their civic duty and make a voting plan.

3) Support candidates that meet the Principled Candidate standard and commit to free, fair, and secure elections. We've continued our practice, started in 2018, of highlighting a list of extraordinary, highly-qualified candidates for Congress.

4) No matter what happens in the election, the ECA and the Supreme Court Independent State Legislature case will be critical to the conduct of future elections. Make your voice heard by engaging your members of Congress or publicly speaking out on these and other democracy issues.

5) Read on to learn about our new State Democracy Report Card, and for the latest Leadership Now news and recommended reads.

Thanks again for your commitment and leadership.

Best,
Daniella

Women Registered as Independents in Swing States Can Influence Midterms...If They Vote

“When it comes to deciding the key 2022 congressional races, the constituency that will make the greatest difference in the outcome is independent women. That is, women who do not currently identify as Democratic or Republican,” stated Tom Rogers, editor-at-large for Newsweek and founder of CNBC in his article.

Rogers made this assessment after viewing the results of a survey we did with our partners at Emerson College Polling. Together, we wanted to gain greater insight into the viewpoints of registered Independent women in key swing states, including Arizona, Georgia, Michigan, Pennsylvania, and Wisconsin.

We wanted to understand how the “most purple of voters in the most purple of states” felt about abortion, gun control, and democratic values, versus economic issues like inflation.

This infographic shows some of the key findings:

Want to dive into the data more? View the full report.

Also, you can see this information highlighted on Tom Rogers on MSNBC's Morning Joe.

Wisconsin Business Leaders Speak Out on the Importance of Democracy

Wisconsin LNP members John Florshiem and Sachin Shivaram recently released an op-ed urging business leaders to take action and protect American democracy. Florshiem is the president of Weyco Group and Shivaram is CEO of Wisconsin Aluminum Foundry. Below are highlights from the article.

• After the January 6, insurrection, businesses across the country overwhelmingly spoke out against the events, including implementing policies to prohibit providing funding election objectors.

• These actions played an important role in ensuring a peaceful transition of power.

• However, since the insurrection, threats to our democracy have continued. These threats have a direct impact on market stability and economic growth.

• Because they have a variety of stakeholders, businesses are put in the difficult position of deciding if and how to act when threats to democracy occur.

• Business leaders must use their collective voice to ensure political stability and adherence to the rule of law.

“We also know that the tempation to turn a blind eye — to believe this is not a problem of ours — is strong. But it is wrong.”

— John Florsheim & Sachin Shivaram

Read the full op-ed here.

How to Bring Transparency to Corporate Political Spending

In April, Kevin Brennan, co-head of the Investment Engine and Director of Investment Systems at Bridgewater Associates, and Paige Warren, a longtime finance executive and current senior fellow at the Advanced Leadership Initiative at Harvard University, co-authored a memo outlining how ESG—a field that has traditionally focused on issues such as environmental degradation, diversity and racial equity, human rights, board structure, and executive compensation—intersects with corporate political spending. 

Our findings? Corporate political influence is a critical but overlooked driver of ESG impact.

The Leadership Now Project ESG Task Force has championed this work, spending the past several months interviewing investors and corporate executives and gathering data from resources such as OpenSecrets, InfluenceMap, and the Center for Political Accountability. This research has helped inform our thesis:

• Corporate political influence matters to ESG.

• Political spending is often an overlooked arena when it comes to ESG.

• CEOs are more likely to align corporate political spending and ESG priorities when they experience pressure from key influencers: investors, board members, and executives and employees, supported by media awareness.

At Leadership Now, we recommend leaders of U.S. public companies take a few critical actions to ensure corporate political spending is transparent, aligned with their ESG goals, and contributes to a stable political and economic environment. 

Read more in our new memo “ESG and Corporate Political Spending: Practical Actions For Business Leaders to Reduce Risk, Ensure Alignment, & Support A Stable Economic Environment” 

Since publishing the memo, Kevin and Paige are looking ahead to what comes next. After a year exploring the potential for the ESG investing wave to help strengthen US democracy, they identified an opportunity to focus on corporate political influence. They are now working on launching a new initiative called OpenBook that aims to create the norm for corporations to provide transparency and accountability for their political spending and influence activities. Look out for their interviews on our blog in the coming weeks. 

For more insights on ESG and Corporate Political Influence, visit our ESG learning center.

ESG & Political Risk: A New Leadership Imperative

Nearly every week seems to bring a new crisis for business leaders to navigate -- from Russia’s invasion of Ukraine to the Supreme Court’s leaked Roe v. Wade decision to Florida’s ‘Don’t Say Gay’ legislation to the acquisition of Twitter. With business remaining the most trusted voice in society, it’s more clear than ever that leaders need to be proactive about what their values are -- and what those values mean in the policy and political sphere.  

How does this relate to democracy and ESG? Increasingly investors and employees seek to understand how political spending aligns with a company’s ESG priorities and if that spending is creating unintended risks. For instance, companies like Airbnb and Microsoft decided that politicians who supported the Jan 6th insurrection were creating too great a political risk to America’s economy and democracy. They promptly pulled their political contributions, and a majority of companies continue to refrain from funding those political leaders. Similarly, companies en masse halted business activities in Russia in response to the invasion of Ukraine.

As state legislators introduce bills impacting the LGBT community and abortion rights, the question of how a company responds will become more local. Executives will need to decide if this type of state legislation threatens their commitment to inclusion and equity as Yelp CEO Jeremy Stoppelman argued this week, and if they will stop supporting state legislators advancing those bills, many of whom receive substantial campaign funding from companies.

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Leadership Now launches new ESG memo

ESG and Corporate Political Spending: Practical Actions For Business Leaders to Reduce Risk, Ensure Alignment, & Support A Stable Economic Environment 

The memo, written by Kevin Brennan, co-head of the Investment Engine at Bridgewater Associates, and Paige Warren, a senior fellow at the Advanced Leadership Initiative at Harvard, highlights how political spending impacts ESG priorities and offers a roadmap for company leaders to proactively manage risks through greater transparency.  

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Companies can take several steps to proactively manage risk. The first is to make sure political spending is transparent. This is measurable -- it is currently tracked by the CPA-Zicklin Index -- and is a factor ESG investors can consider. Second, decision-makers need to be clear on what their corporate values and risks are -- whether it is climate change, election risks, or inclusion -- and understand if those priorities are reflected in the candidates and political organizations their company funds. In order to accomplish this, the authors provide practical guidance for company leaders on the integration of political spending data into ESG frameworks.

These are tricky times for all leaders to navigate. As the Disney case study illustrates, political risk requires proactive management, not reactive steps taken in the midst of a crisis.

At Leadership Now, we are excited to build upon this first memo and grow our ESG initiative. If you’re interested in getting involved or learning more, please reach out to Suraj Patel.